MNI: UK Hammond: No Brexit Deal Spending Allotted Late As Can

--Value of EU Transition Deal Will Diminish The Later It Gets In 2018

By David Robinson 

     LONDON (MNI) - UK Chancellor of the Exchequer Philip Hammond said Tuesday

that he was prepared to authorise public spending to cover the consequences of

no Brexit deal but any such departmental spending would only be allocated late

in the day when it was clearly needed.

     Hammond's comments to the Treasury Select Committee (TSC) made clear that

departmental spending for no Brexit deal will not feature in his upcoming Budget

in November. He said that no deal spending would come from contingency reserves,

ensuring that it would not impact headline borrowing numbers.

     If the UK were to fail to reach an agreement with the European Union and to

leave in March 2019, a raft of changes would be required for handling the new

customs and regulatory regimes.

     Hammond, however, already looks set to face a tougher challenge than

previously to meet his fiscal aims, with the Office for Budget Responsibility,

which oversees the government's Budget arithmetic, revealing Tuesday that it

expects to cut its estimate of UK potential productivity.

     Hammond told the TSC that while there were problems measuring productivity

he accepted that the UK has a fundamental productivity problem. He cited extreme

regional disparities and the role of the public sector as factors behind low UK

productivity. He also cited Brexit related uncertainty holding back investment.

     Asked about the prospects for a transitional deal with the EU to kick-in in

2019, Hammond said there was widespread recognition that it was a sensible

option.

     He warned, however, that the value of a transitional deal would diminish

with time, and it would become less valuable as 2018 progressed, as firms had to

plan ahead and lead times can be long.

     Hammond said that the plan was to have a transition period of "around two

years" with flexibility on the duration with it precisely delimited when a deal

is struck.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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